Tracking Lou Simpson's SQ Advisors Portfolio - Q2 2014 Update

|
 |  Includes: BAM, BRK.A, BRK.B, CCK, MCO, ORCL, SCHW, T, TEL, UPS, USB, VRX, WFC
by: John Vincent

Summary

Lou Simpson’s US long portfolio increased around 6.5% from $2.30B to $2.45B this quarter.

SQ Advisors portfolio remained remarkably steady this quarter, although very minor changes were made to every position.

SQ Advisors has just twelve positions. The top-three holdings are Wells Fargo, Berkshire Hathaway, and Oracle Corporation, and they together account for over one-third of the entire portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Lou Simpson's US stock portfolio on a quarterly basis. It is based on Simpson's regulatory 13F Form filed on 08/14/2014. Please visit our Tracking Lou Simpson's SQL Advisors Portfolio series to get an idea of his investment philosophy and our previous update highlighting the fund's moves during Q1 2014.

This quarter, Simpson's US long portfolio increased around 6.5% from $2.30B to $2.45B. The number of holdings in the portfolio remained steady at 12. The top five holdings represent around 54% of the US long assets: Wells Fargo, Berkshire Hathaway, Oracle Corporation, United Parcel Service, and US Bancorp. All twelve positions were adjusted during the quarter, although the changes were all minor.

Stake Disposals:

None.

New Stakes:

None.

Stake Decreases:

Moody's Corp (NYSE:MCO): MCO is a 5.39% of the US long portfolio stake. The position was first established in Q4 2012 at prices between $44 and $51.50. In Q1 2013, the stake was roughly doubled at prices between $43.30 and $55.50. The stock currently trades well above those ranges at around $91.36. The position was slightly increased in Q4 2013, but last quarter saw an about turn: a ~25% stake reduction at prices between $72.65 and $83.58. The pattern continued this quarter, although the selling was very minor. Lou Simpson is starting to harvest long-term gains from the position.

Stake Increases:

DirecTV (DTV): DTV position had been steadily increased by more than double since Q4 2011. Q4 2013 saw an about-turn as the position size was reduced by over 43% at prices between $58 and $69. Last quarter saw minor additional trimming. This quarter, the position was marginally increased. The stake now accounts for 5.71% of the US long portfolio. The stock spiked recently (currently trades at $84.21), as AT&T (NYSE:T) has agreed to acquire DTV in a $95 per share cash-and-stock deal ($28.50 per share cash).

TE Connectivity (NYSE:TEL): TEL has been in the portfolio since Q4 2011 when it was already a 10.36% stake. The share count was increased by over ~45% over several quarters since. In Q4 2013, the position was reduced by ~40% at prices between $49.91 and $55.11. Since then, it has been kept steady although minor adjustments were made in the last two quarters. The stock currently trades at around $62.15.

Valeant Pharmaceuticals (NYSE:VRX): VRX position has been increased by ~43% since Q4 2011. The stake currently stands at 8.18% of the US long portfolio. The last four quarters saw small stake reductions, but this quarter saw a very minor increase. Lou Simpson has large gains on this position and is continuing to hold on.

Charles Schwab (NYSE:SCHW): SCHW stake had been increased by around 53% since Q4 2011 to a large 9.30% of the US long portfolio position as of Q4 2013. Last quarter, the stake was reduced by 20% at prices between $23.65 and $28.53. This quarter the pattern reversed with a 3.4% increase at prices between $24.85 and $27.90. The stock currently trades at $27.27. The position now stands at 6.89% of the US long portfolio. Despite the marginal increase this quarter, the significant stake reduction last quarter indicates a mild bearish bias.

United Parcel Service (NYSE:UPS): UPS was a brand new 7.85% of the US long portfolio position established in Q2 2013 at prices between $82.30 and $89. It was increased by ~53% in Q3 2013 at prices between $85 and $92. Last three quarters saw a combined 19% stake increase at prices between $85 and $105. The stock currently trades at around $96.85. The large stake build-up over the last five quarters indicates a clear bullish bias. For investors attempting to follow Lou Simpson, UPS is a good option to consider for further research.

Wells Fargo (NYSE:WFC): WFC is the largest position at 12.11% of the US long portfolio. It was consistently built-up since Q4 2011. In Q3 2013, the position was increased by ~20% at prices between $41 and $45. Q4 2013 saw a 10.5% stake increase at prices between $40 and $45.50 and last quarter saw an additional 12.5% increase at prices between $44.43 and $49.74. This quarter saw an additional 4.5% increase at prices between $46 and $53. The stock currently trades at $50.21. The aggressive buying indicates a clear bullish bias.

Oracle Corporation (NASDAQ:ORCL): ORCL is a large 11.08% position which was first purchased in Q1 2012 at prices between $26.50 and $30.20. The bulk of the position was purchased in Q4 2012 and Q1 2013 at prices between $29.50 and $36.30. Last four quarters saw a combined one-third stake increase at prices between $31 and $42. The stock currently trades at around $40.28. The activity indicates a bullish bias.

US Bancorp (NYSE:USB): US Bancorp was a minute 0.03% of the US long portfolio position as of Q2 2013. The stake was increased substantially to a 3.68% position in Q3 2013 at prices between $36 and $38. Q4 2013 saw a stake doubling at prices between $35.70 and $40.60 and last quarter saw an additional 15% stake increase at prices between $38.78 and $43.42. This quarter saw an additional 6.5% increase at prices between $40 and $44. The stock currently trades at around $41.27. The position now stands at 8.44% of the US long portfolio. The strong buying over multiple quarters indicates a clear bullish bias.

Brookfield Asset Management (NYSE:BAM): BAM is a 6.80% of the US long portfolio position first purchased in Q2 2012 at prices between $30 and $33. The stake was increased by a combined 56% over the last five quarters at prices between $34 and $45. The stock currently trades outside those ranges at $47.51.

Crown Holdings (NYSE:CCK): CCK position size has more than doubled since Q4 2011. Q4 2013 saw a ~12% stake increase at prices between $40 and $44.50 and last quarter saw an additional ~16% increase at prices between $40 and $45. This quarter, the position was again increased by ~6% at prices between $44 and $51. The stock currently trades at $46.45 and the position stands at 7.63% of the US long portfolio. For investors attempting to follow Simpson, CCK is a good option to consider for further research.

Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B): BRK is a top-three position at 11.41% of the portfolio. The original stake was increased by roughly 40% in Q1 2012 at prices between $76 and $82. The position was further increased in the next several quarters. Last quarter saw a ~26% stake increase at prices between $109 and $125 and this quarter saw a further ~4.5% increase at prices between $121 and $129. Lou Simpson continues to be very bullish on Berkshire Hathaway stock. The stock currently trades at around $134, well above Simpson's cost-basis.

Kept Steady:

None.

The spreadsheet below highlights changes to Simpson's US stock holdings in Q2 2014:

Click to enlarge

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.